Highlight of Business Operations:

Oil revenues increased $56.7 million to $276.3 million for 2010 from $219.6 million for 2009 primarily reflecting higher average realized prices ($77.4 million), partially offset by lower sales volumes ($20.7 million). Our average realized price for oil increased $17.43 per Bbl to $66.87 per Bbl for 2010 from $49.44 per Bbl for 2009. The increase is primarily attributable to an increase in the NYMEX oil price, which averaged $78.05 per Bbl in 2010 versus $59.79 per Bbl in 2009. Oil sales volumes decreased 3.4 MBbls per day to 45.4 MBbls per day in 2010 from 48.8 MBbls per day in 2009, primarily reflecting decreased production from our onshore California properties.

Gas revenues increased $29.2 million to $87.7 million in 2010 from $58.5 million in 2009 due to an increase in sales volumes ($17.2 million) and an increase in realized prices ($12.0 million). Gas sales volumes increased from 191.1 MMcf per day in 2009 to 237.7 MMcf per day in 2010, primarily reflecting increased production from our Haynesville Shale properties. Our average realized price for gas was $4.05 per Mcf in 2010 compared to $3.37 per Mcf in 2009. Our realized price for gas increased primarily due to an increase in the NYMEX natural gas price, which averaged $4.09 per MMBtu in 2010 versus $3.50 per MMBtu in 2009.

Depreciation, depletion and amortization. DD&A expense increased $33.0 million, to $123.8 million in 2010 from $90.8 million in 2009. The increase is attributable to our oil and gas depletion, primarily due to a higher per unit rate ($28.6 million) and increased production ($5.8 million). Our oil and gas unit of production rate increased to $15.33 per BOE in 2010 compared to $11.49 per BOE in 2009.

Oil revenues increased $176.1 million to $552.3 million for 2010 from $376.2 million for 2009 primarily reflecting higher average realized prices ($222.2 million), partially offset by decreased sales volumes ($46.1 million). Our average realized price for oil increased $25.01 per Bbl to $67.34 per Bbl for 2010 from $42.33 per Bbl for 2009. The increase is primarily attributable to an increase in the NYMEX oil price, which averaged $78.46 per Bbl in 2010 versus $51.68 per Bbl in 2009. Oil sales volumes decreased 3.8 MBbls per day to 45.3 MBbls per day in 2010 from 49.1 MBbls per day in 2009, primarily reflecting decreased production from our onshore California properties.

Gas revenues increased $65.6 million to $195.4 million in 2010 from $129.8 million in 2009 due to an increase in sales volumes ($39.8 million) and an increase in realized prices ($25.8 million). Gas sales volumes increased from 189.9 MMcf per day in 2009 to 238.5 MMcf per day in 2010, primarily reflecting increased production from our Haynesville Shale properties. Our average realized price for gas was $4.52 per Mcf in 2010 compared to $3.77 per Mcf in 2009. Our realized price for gas increased primarily due to an increase in the NYMEX natural gas price, which averaged $4.67 per MMBtu in 2010 versus $4.17 per MMBtu in 2009.

Depreciation, depletion and amortization. DD&A expense increased $67.3 million, to $246.2 million in 2010 from $178.9 million in 2009. The increase is attributable to our oil and gas depletion, primarily due to a higher per unit rate ($56.9 million) and increased production ($11.3 million). Our oil and gas unit of production rate increased to $15.33 per BOE in 2010 compared to $11.49 per BOE in 2009.

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